9911796707
TMI Blog1987 (7) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... t at all. Therefore, the District Judge, Coimbatore thought that the said amounts should be invested in Government securities so that during the period of minority of the assessee, the amounts belonging to him would not only be safe, but at the amounts belonging to him would not only be safe, but at the same time would yield interest income for the benefit of the minor. It appears that the District Judge in consultation with the Postmaster, Head Office, Coimbatore, directed the investment of the monies lying in court deposit in 12-Year National Plan Savings Certificates (hereinafter referred to as NPC). Thus, as per Court order as sum of Rs. 4.5 lakhs came to be invested in 12-Year NPCs. On 25-9-1964 certificates of the value of Rs. 1 1/2 lakhs were encashed for purchase of a house property in the name of the minor with the permission of the Court. The remaining certificates of the value of Rs. 2,55,540 were sought to be encashed in 1973 after the assessee became a major in 1971. At that time the assessee was informed that he was not entitled to any interest on the amounts invested in these certificates as his holding and exceeded the limits prescribed under the rules and regulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Officer held that the entire interest income accrued to the assessee by means of the order of the Finance Ministry dated 5-4-1974 under which the assessee became entitled to the interest income in question and that therefore the entire interest income was liable to tax in the assessment year 1975-76 relevant for the previous year ended 31-3-1975. The Income-tax Officer pointed out that there were no provisions in the Post Office Savings Certificate Rules to grant interest on the value of certificates held in excess of the prescribed limit and that but for the special order passed in the assessee's case by the Ministry of Finance, no interest was due to the assessee. He therefore held that it was very evident that the interest accrued to the assessee on 5-7-1974. In support of his conclusion, the Income-tax Officer relied on the Supreme Court decision in the case of Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28 wherein it was held that the income which had accrued to an assessee might remain indisposed of but liability to tax attaches to it under the provisions of the Income-tax Act as soon as it accrues. The Income-tax Officer therefore worked out the amount of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing out of this investment of the larger quantum also became exigible for relief under section 10(15). 7. The CIT (Appeals) then considered the effect of the said order of the Department of Economic Affairs, more particularly the portion appearing under clause (iii) of para 2 of the said order. He pointed out that under this condition, the Finance Ministry decided that on the regularisation of the deposits made by the Court, interest would be payable on a modified scale, not to the full extent as was normally exigible otherwise, but on a reduced scale, namely that interest on Rs. 75,000 would be paid at rates applicable to certificates and the Savings Bank in Post Offices and on the balance of Rs. 3,30,540 interest paid again at Savings Bank rates but that component would be taxable as against interest on Rs. 75,000 being not taxed. While agreeing with the contentions of the learned counsel for the assessee regarding the residuary powers of the Government to modify the rules and regulations under any scheme and also that there could be no further whittling down of the benefits once a relaxation had been granted, the CIT (A) also held that the order of the Government has to be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sheshagiri Rao, the learned departmental representative, relied on the findings of the Income-tax Officer and contended that the interest income of Rs. 1,40,642 was rightly brought to tax on accrual basis in the hands of the assessee for the assessment year 1975-76. He contended that the assessee became entitled to receive this interest amount only by virtue of the letter dated 5-4-1974 written by the Finance Ministry, that but for this letter, the assessee had no right to receive this interest in respect of the investments made in NPCs and that the decision of the CIT (Appeals) to the contrary was erroneous in law. Shri Seshagiri Rao in support of his submissions brought to our notice the second proviso to rule 13 of the Post Office Savings Certificate Rules, 1960, which had come into force with effect from 19-7-1983 and submitted that there was no such proviso in the original rule 13 at the time the Finance Ministry passed the order on 5-4-1974, and that therefore the Income-tax Officer was fully justified in bringing to tax the entire amount in the first assessment year 1975-76. In support of his submissions, Shri Seshagiri Rao relied on the following decisions : (1) CIT v. A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixing a lower rate of interest in respect of investments made in excess of the ceiling limit and that it only meant that there was a dispute only in regard to the rate of interest payable to the assessee and not in respect of the assessee's right to receive such interest in respect of these certificates from the Government. The learned counsel submitted that the assessee would be entitled to such interest under the proviso to section 1 of the Interest Act of 1939 or at any rate the assessee would be entitled to such interest in respect of each year, for which the money invested in these certificates were "had and received" and held by the Government under the Contract Act. According to Shri Padmanabhan, the second proviso to rule 13 of the Post Office Savings Certificate Rules, 1960 relied on by the learned Departmental Representative only gives a statutory recognition to the principle contained in the letter dated 5-4-1974 issued by the ministry of Finance to the assessee and that this second proviso clearly established that a person whose holdings were in excess of the ceiling fixed for such holdings due to a bona fide error would be entitled to payment of simple interest on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tt. Director General (SS) at page 19 of the assessee's paper book. 12. It is the case of the revenue that the assessee became entitled to receive this interest amount of Rs. 1,29,642 only on the passing of the order by the Ministry of Finance on 5-4-1974 and not earlier, and that therefore the entire interest income, which was computed by the ITO at Rs. 1,40,642.15 was chargeable to tax in the assessment year 1975-76, though the Income-tax Officer made a protective assessment on receipt basis for the assessment year 1976-77 including the interest income of Rs. 1,29,642. The order passed by the Department of Economic Affairs, Ministry of Finance on 5-4-1974 is fully set out in paragraph 7 of the appellate order of the CIT (Appeals). We therefore do not propose to burden this order by reproducing the order again here. A perusal of the said order shows that the Ministry of Finance agreed to the regularisation not only of the irregular issue of certificates in the assessee's case, but also to the interest paid on the said certificates in the manner indicated in their order. Thus, this order establishes that the Ministry of Finance recognised the assessee's right to receive interest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen it would be clear that the intention in making the investments in these 12-Year NPCs was with a view to earn reasonable income for the minor during his minority through a safe form of investment in Government security. But for the ceiling fixed under the relevant rules relating to investments in 12-Year NPCs, which apparently was not brought to the notice of the Distt. Court by the Head Postmaster there would be nothing wrong or irregular in the investments made on behalf of the assessee by the District Judge and the assessee would have been entitled to receive this interest at the rates specified in the said certificates. It is because a dispute was raised by the Postal Department by holding the investments to be irregular, that the assessee became entitled to interest at a lower rate. Thus, the assessee's right to receive interest for the period during which his amounts were lying with the Government, could hardly be in doubt or dispute. The order dated 5-4-1974 only fixed the rate of interest at which interest was payable to the assessees in respect of the investments made on his behalf. The final quantification of interest by the Postal Department was made on 14-7-1975 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case was also a case of acquisition of land. In the award giving compensation for the compulsory acquisition of land, the assessee was paid interest for 22 years from May 15, 1945 to 26th April 1967, the date of the award. The Delhi High Court held that the interest paid for 22 years was in lieu of the loss of income for those 22 years, during which period, the assessee did not have the lands and did not have the compensation amount and that the interest was to be treated as relating to the loss of income during those 22 years and could not be treated as a revenue receipt of only one year. Their Lordships finally held that the interest had to be spread over a period of 22 years and assessed to tax accordingly. This decision of the Delhi High Court fully supports the case of the assessee. 15. The decision of the Andhra Pradesh High Court in V. Janardhan Reddy's case also supports the assessee's case. It related to the interest paid under section 34 of the Land Acquisition Act, 1894 and their Lordships held that the interest arises on the date when the possession of the land is taken over, and, therefore, that obligation arises at that point of time which continues to recur till ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
